Why has the Commission made fighting tax fraud and evasion a priority?

Every year, billions of euros of public money are lost in the EU due to tax evasion and tax avoidance. As a result, Member States suffer a serious loss of revenue, as well as a dent to the efficiency their tax systems. Businesses find themselves at a competitive disadvantage compared to their counterparts that engage in aggressive tax planning and tax avoidance schemes. And honest citizens carry a heavier burden, in terms of tax hikes and spending cuts, to compensate for the unpaid taxes of evaders. Fighting tax evasion is therefore essential for fairer and more efficient taxation.

The cross-border nature of tax evasion and avoidance, along with Member States’ concerns to maintain competitiveness, make it very difficult for purely national measures to have the full desired effect. Tax evasion is a multi-facetted problem requiring a multi-pronged approach, at national, EU and international level.

EU Member States need to cooperate closely if they are to increase the fairness of their tax systems, secure much needed tax revenues and help to improve the proper functioning of the Single Market. In addition, the “strength in numbers” of the EU acting as a united block helps give more weight in achieving faster and more ambitious progress at international level in the area of tax good governance.

What progress has been made in fighting tax evasion and avoidance at EU level over the past year?

In December 2012, the Commission presented an Action Plan to better tackle tax evasion and corporate tax avoidance (IP/12/1325). This Action Plan kick-started what has become a highly intensive EU campaign to better fight these problems. It was endorsed at the European Council in May, where EU leaders called for effective steps to be taken to combat tax evasion and avoidance.

In the 12 months since the Action Plan was presented, there has been remarkable progress in this area at EU level, and a number of important new initiatives have been put forward by the Commission. Among the actions taken in 2013 were:

Expanding the automatic exchange of information widely within the EU

In June, the Commission proposed extending the automatic exchange of information between EU tax administrations, to cover all forms of financial income and account balances (IP/13/530). This paves the way for the EU to have the most comprehensive system of automatic information exchange in the world. It will also ensure that the EU will well-placed to implement the new global standard (see below) quickly and with minimum disruption to businesses. The proposal could be agreed by Member States in the first half of 2014.

Tightening EU corporate tax rules against aggressive tax planning

In November, the Commission proposed measures to close loopholes in the Parent-Subsidiary Directive and address national mismatches. This will shut off opportunities for a particular type of corporate tax avoidance (IP/13/1149). The proposal should be discussed and possibly agreed by EU Finance Ministers under the Greek Presidency.

Negotiating with neighbouring countries for greater transparency

The Commission was given a mandate to negotiate stronger tax agreements with Switzerland, Andorra, Monaco, San Marino and Liechtenstein (MEMO/12/353) in May. Commissioner Šemeta immediately visited all 5 countries, to give political drive to the talks and underline that the EU was looking for swift and ambitious negotiations. Formal negotiations have begun with the 4 smaller countries and will start with Switzerland as soon as it has its own negotiating mandate (expected before the end of the year).

Establishing a Platform on Tax Good Governance

The Commission established a Platform on Tax Good Governance to discuss the best ways to fight tax evasion and avoidance and monitor progress in this area at both EU and national level (IP/13/351). The Platform has already started work on how best to implement the Commission’s Recommendations on Aggressive Tax Planning and on how to deal with tax havens. Its work programme also includes several other areas of focus, including an EU Taxpayer’s Code, ways to increase transparency of multinationals and looking at the effects of EU tax policy on developing countries.

Launching the debate on Digital Taxation

The Commission established a High Level Expert Group on Taxation of the Digital Economy, chaired by former Portuguese Finance Minister Vitor Gaspar. It will meet for the first time on 12 December (IP/13/983). Corporate tax avoidance is an especially pressing problem in the digital sector. The group will look at the particular challenges in digital taxation and propose solutions in the first half of 2014 to ensure that the digital sector pays its fair share of taxes, while not creating tax obstacles to this pro-growth sector.

Agreeing new instruments to better fight VAT fraud

In June, Member States unanimously agreed on a set of measures to better combat VAT fraud. The Quick Reaction Mechanism and reverse charge mechanism will allow Member States to react more quickly and efficiently to large-scale VAT fraud, thereby reducing substantial losses for public finances. These new instruments will be ready for use from 2014 (IP/12/868).

Proposing new standard VAT form to improve tax compliance

In October, the Commission proposed a simplified, standard VAT form for use by businesses throughout Europe. In addition to easing life for businesses, this standard form will help to improve tax compliance by simplifying the procedure for businesses to declare the VAT they owe (IP/13/988). And greater compliance means greater revenues for national budgets.

Publishing a new report on VAT Gap in EU

The Commission published a study on the VAT Gap in the EU, which amounted to €193 billion in 2011. Prior to this study, the most recent estimates for the VAT Gap dated back to 2006. The new figures help to better understand the recent trends in the EU, to better shape and target policy measures to improve VAT compliance (MEMO/13/800).

Preventing harmful tax competition

The Commission has continued to scrutinise and control state aid granted through tax measures to companies. It has also supported the work of the Code of Conduct Group against harmful tax competition, contributing detailed analyses of many national tax regimes for consideration by the Code Group.

Introducing more corporate transparency

The new Accounting Directive introduces an obligation for large extractive and logging companies to report country-by-country the payments they make to governments, and also on a project-basis. Taxes levied are among the payments to be reported. The revised Capital Requirements Directives (CRDIV) improves transparency in the activities of banks and investment funds in different countries, particularly regarding profits, taxes and subsidies in different jurisdictions (MEMO/13/690). It is hoped that the implementation of the May European Council Conclusions will ensure that all large companies and groups make public how much they pay in tax and in which country, as banks now need to do. Finally, the Commission’s proposal to revise the anti-money laundering legislation includes a specific reference to tax crimes (IP/13/87).

The active work at EU-level was also mirrored in the active role that the EU played in pushing forward international discussions to improve tax good governance worldwide (see below).

Where is there room for greater action at this stage in the fight against tax evasion and avoidance in the EU?

First and foremost, agreement is needed on the Savings Tax Directive (MEMO/12/353) before the end of 2013, as called for by the European Council in May. This is crucial to close loopholes in the Savings Directive, and ensure that it can continue to work well. An EU-wide framework for automatic information exchange will also give banks more legal certainty and clarity about reporting obligations.

Progress on the Common Consolidated Corporate Tax Base (CCCTB) is also very important to better tackle corporate tax avoidance (IP/11/319). In addition to substantially reducing administrative burdens for businesses, the CCCTB has the potential to eliminate many opportunities for profiting by multinational companies. This is recognised in the OECD’s action plan against Base Erosion and Profit Shifting (BEPS), and agreement on the CCCTB would ensure that the EU is the standard setter in this area.

As stated in last year’s Action Plan, the Commission would encourage Member States to make better use of the Code of Conduct on Business Taxation. This can be a highly effective tool for identifying and eliminating harmful tax regimes within the EU. The Commission is currently considering ways of strengthening the Code, for example by extending its scope or amending the Code criteria.

In addition, Member States have been called upon to intensify efforts at national level to tackle tax evasion and avoidance. Country specific recommendations were given to 13 Member States to improve tax compliance at national level. And the 2013 Annual Growth Survey again called on all governments to step up their national campaigns against tax evasion, and strengthen their coordinated action to tackle aggressive tax planning and tax havens.

Meanwhile, the Commission is continuing work on the medium and long-term actions set out in the Action Plan against tax evasion last year. These include a Taxpayers’ Code, an EU Tax Identification Number and possibly common sanctions across the EU for tax offences.

What has been achieved at international level to improve the fight against evasion and avoidance, and what has been the EU’s contribution to this?

In September 2013, G20 leaders agreed on concrete measures to better tackle tax evasion and corporate tax avoidance worldwide. First, they confirmed a move to greater international tax transparency, by agreeing that automatic exchange of information should be the new global standard of cooperation between tax administrations. Second, they endorsed the OECD’s BEPS action plan to curb corporate tax avoidance worldwide. These measures confirm a major improvement in international taxation – one that will make it fairer, more effective and better equipped for the 21st century economy. With the political commitment made, the focus is now on implementing these changes.

With regard to the automatic exchange of information, the EU has drawn on its own experience and expertise in this area to actively contribute to the development of the new global standard. In particular, the Commission has tried to ensure that the global standard takes into account the existing EU automatic information exchange arrangements and is compatible with EU law (e.g. data protection), so as to avoid any unnecessary difficulties for businesses. The latest draft of the global standard appears to meet at least most EU needs, and the OECD intends to present the final version to the G20 Finance Ministers in February for agreement.

Meanwhile, the BEPS Action Plan complements the EU measures to tackle aggressive tax planning, while also addressing issues that can only be effectively dealt with at international level. The BEPS action plan sets out 15 specific actions to re-adjust international standards in taxation so that they are better shaped for the changing global economy. Over the next year, new rules and standards will be developed in areas such as permanent establishment, transfer pricing and digital taxation. The aim is to protect the fairness and integrity of tax systems, and better equip governments in their clamp down on corporate tax avoidance. The EU has already valuable experience in various areas covered by BEPS such as transfer pricing and tackling hybrid mismatches. And the work of the Commission’s expert group on digital taxation will provide input for the OECD digital taskforce. With this input and experience to offer, the EU can continue to play a central role in the work to implement BEPS, particularly if a strong, coordinated position is maintained amongst all Member States.

AEO Course

Welcome to this electronic course which is designed to help learn the relevant facts about the Authorised Economic Operator (AEO) legislation and the process of becoming an AEO. The course can be downloaded as a zip-archive. The content of this file is as follows:

Quick Start Guide document

AEO Course

This page addresses some general questions you may have about the course.

Why is the topic of AEO important for trade?

AEO is a concept that aims at balancing increased security requirements with facilitations for compliant traders. It constitutes a main element of the Customs Security Program of the European Union.

The training is intend to be a helpful tool both to customs and trade about the legislation, the benefits and the process of getting the AEO status.

Our target is to foster a uniform implementation of the connected standards throughout the European Union.

What will you learn by studying this course?

Having studied this course, you will:

be familiar with the AEO concept and the 3 types of AEO certificates

understand why an AEO status may be of interest for an economic operator

know how and where to apply for an AEO certificate

be familiar with the criteria that will need to be met and how should one prepare for this

understand customs’ decision process

know the actions will need to be taken once AEO status is granted

How was the course developed?

The course was developed under the Customs 2013 Programme. The content was created by a project team comprised of national experts and officials working at the Customs and Taxation Directorate General of the European Commission.

The course contains topics considered to be of common interest across the EU.

Please note that this course replaces the AEO eLearning modules for Customs and Economic Operators published in 2009. It reflects the updates of the related legislation performed in the past years and the experiences gained by customs and business so far.

As a consequence, the outdated AEO courses and their translated versions will be archived and not accessible anymore.

How should the course be followed?

The course is divided into five learning units as follows:

Unit

Title

Approximate time to complete (in minutes)

1.

Course Introduction

10:00

2.

What is AEO

60:00

3.

Applying for AEO status

60:00

4.

Course summary

15:00

5.

Assessment

Please note that the course also provides information on Criteria and Risk in two separated floating units of 30 minutes each.

The course is available in English. Other language versions will be added in due course.

It is recommended:

that the student follows the five units in the order in which they are presented

that the study of these units be spread over a number of days to avoid information overload

that the student has the opportunity to discuss what is learned with others

that the student is facilitated in relating the material to his/her own work environment

How should I Start to Use This Course?

First, please save the zip-file to your hard disk

Extract the zip-file to a folder of your choice

Read the ‘Quick Start Guide‘- document in this folder

This document will provide you with all the necessary technical information

Install the course to your system as specified in this document or ask your system administrator to do so

Using the course does not require a high level of information technology skills on the part of the students.

INSTITUTE OF INTERNATIONAL AND EUROPEAN AFFAIRS

The crisis that we are going through is the biggest economic crisis since 1929.

The European Union has reacted to this crisis by promoting fiscal discipline in Member States through the creation of the European Semester.

We also worked on the stability of financial markets by creating financial backstops, proposing a supervisory role for the European Central bank and launching the European Stability Mechanism.

In addition, and as a necessary companion to fiscal discipline, we put forward the EU 2020 Strategy and the Growth Compact to promote growth and jobs.

We now have the governance tools and rules to ensure that the EU as a whole can forge ahead on the path to recovery and growth.

Nonetheless, the outlook for this year is still weak and

2013 will continue to be challenging. We must sustain our commitment to recovery, deploy all necessary instruments and pull tighter together as a Union to emerge strong from this crisis.

Where does tax policy stand in this context?)

In this context, we must look at how tax policy can contribute to the consolidation and smart growth agenda of the EU.

In the Single Market, we should strive towards world class tax systems, which would put the EU at a decisive competitive advantage in the global economic arena.

We must create a tax environment which allows businesses to expand and create jobs, and attracts foreign investors.

We must cut compliance costs and red tape, so that businesses can invest what they save in bureaucracy in research, innovation and training.

We must also create a fair tax environment. One where it pays to work and where labour and capital, across all the sectors of the economy, would contribute a fair share to financing our European social and economic model.

So, how to progress on this road towards making the Single Market the best place in the world to do business? I believe that the answer is twofold:

First, we need to push, through the European Semester process, for appropriate tax reforms in Member States.

Second, Member States should speed up the adoption of the initiatives proposed by the Commission to strengthen the Single Market, which should become a reality also from the tax perspective.

Using the European Semester to improve the quality of tax systems in the Member States

An assessment of last year’s exercise

Let me start with a few words on our experience so far with taxation in the European Semester.

Over the last few months, there has been a general trend observed in the Member States towards fundamental tax reforms.

However, there is still scope to shift the overall tax burden towards tax bases that are less detrimental to growth and job creation.

Such a shift requires a package approach which ensures equitable redistribution and is adapted to the circumstances of the individual Member State.

This is why the Commission recommends that:

First, the tax burden on labour should be substantially reduced in countries where it is comparatively high and hampers job creation. To ensure that reforms are revenue neutral, taxes such as consumption tax, recurrent property tax and environmental taxes should be favoured.

Second, revenue should preferably be raised y by broadening tax bases rather than by increasing tax rates or creating new taxes;

Third, tax compliance should be improved by reducing the shadow economy, combatting tax evasion and ensuring greater efficiency in the tax administration.

Finally, the corporate tax bias towards debt-financing should be reduced and tax schemes which increase the debt bias of households should be reviewed to avoid financial risks.

Looking at the national tax reforms proposed so far, it is fair to say that, in general, Member states are following the recommendations made by the Commission.

In this context, I am aware that Ireland continues to make good progress, having met all the quarterly fiscal targets so far under the economic convergence programme.

I also note that most of the tax related elements of the budget presented by the Irish Government last December are well in line with what the Commission recommends for quality tax reforms, which is a good sign for the future.

But let me stress that, whether in Ireland or anywhere else in the EU, success relies on tax reforms which take into account two essential elements: competitiveness and fairness.

A more ambitious trend towards tax shifts and equity

For competitiveness, we know that job creation is fundamental. Therefore, the shift to more growth-friendly taxes is particularly important at a time where we need to use every possible measure to boost employment.

Our analysis of Member States’ tax reforms shows that more can be done to shift taxes away from labour towards consumption, environment or property taxation.

It is also time to put the emphasis on fairness.

The public acceptability of tax reforms depends greatly on how fair they are perceived to be. I will speak in a minute about what we are doing at EU level to this end.

But at national level, more efforts to address fraud and evasion will certainly contribute to fairer burden sharing for honest taxpayers.

The current pressure on public finances could also be turned into an opportunity for increasing the efficiency and effectiveness of the public administrations. In these difficult times, we need to get value-for-money, less expensive and more resilient administration.

A lot is to be done at national level and taxation reforms should benefit more from the e-government programmes in Member States.

Ladies and Gentlemen,

As you know, in the European Union, the main responsibility for tax reforms lies with the Member States. As long as they comply with EU law, they retain their full sovereignty to adapt their tax systems and tax rates to their national preferences and objectives. However, with our extremely interconnected economies, working in isolation doesn’t pay off.

I truly believe that there is immense added-value to tax coordination at EU level.

This can support national reforms and complement the actions of each country by, for example, tackling cross border bottlenecks and simplifying the tax environment for businesses.

Offering new opportunities for growth in the Single Market

This leads me to the second point I would like to raise today. For our common recovery, we must create a more business-friendly environment.

One in which companies can expand beyond their national markets and are not hindered by a patchwork of divergent national approaches to taxation.

(Fragmentation of the Single Market and competitiveness of the EU)

Improving the business tax environment is a central issue for competitiveness of the EU: Investors need stability, legal certainty, less administrative burden and less compliance costs. That is why I proposed a Common Consolidated Corporate Tax Base.

Its purpose is to offer cross-border businesses cheaper and easier access to the Single Market, not to introduce any tax rate harmonisation.

I also proposed a review of the directive on taxation of energy products. It would introduce a formula putting all fuels on an equal footing taxing them on the basis of their energy content and CO2 emissions.

This should avoid double taxation for businesses subject to the Emission’s Trading System and encourage the development of the green economy.

My contacts with the business community also confirm that one key element for a business-friendly environment is to cut red tape, decrease compliance costs and improve business cash flow.

We have taken all this into account in the VAT reform which I presented at the end of last year. Certain important measures have already been delivered. On 1 January, new EU invoicing rules came into force, which will make a big difference to the lives of business – both large and small.

They establish equal treatment between paper and electronic invoices, facilitating the uptake of e-invoicing. And they enable all Member States to authorise cash accounting for micro-businesses, which will make a huge difference to many SMEs in terms of cash-flow.

In other words, we are making sure that VAT rules do not leave the smallest businesses out of pocket, or struggling to make ends meet. The Commission will continue on this route this year, by presenting a proposal for standardising the VAT return.

Ensure fair taxation

Fairness is also an issue which we fully take into consideration in our initiatives at EU level. Our European social model is about combining economic dynamism with social fairness. And taxation plays a part in this model.

The essence of fairness lies in Member States being able to collect the taxes that are due, and all taxpayers paying their legitimate share.

I have briefly mentioned that Member States need to increase their efforts to tackle fraud and evasion at home. Likewise, more European coordination could substantially improve our fight against this problem.

Tax evasion and avoidance deprive Member States of up to €1 trillion every year.

This not only means the loss of much needed revenue, it also undermines fairness. Those who do pay their taxes must pay more, to compensate for the evaders. And competition between tax compliant businesses and their non-compliant counterparts becomes distorted.

With this in mind, in December, the Commission adopted an action plan to fight against tax fraud and tax evasion, along with recommendations to Member States for action. Allow me to briefly mention some of the actions which need quick progress:

First, Savings taxation: Member States must urgently agree on the reinforced Directive and mandate the Commission to review the related Agreement with Switzerland and other non EU European Countries;

Second, tax havens: Member States should implement a common definition of tax havens and black-list uncooperative jurisdictions;

Third, aggressive tax planning. Loopholes and mismatches in the Single Market should not lead to situations of “de facto” non-taxation. Member States should apply common measures to block opportunities for aggressive tax planners. They should reinforce their Double Tax Conventions and adopt a uniform General Anti-Abuse Rule, which would allow them to tax on the basis of real economic substance, and ignore artificial tax arrangements.

I can’t finish on this topic without mentioning a fundamentally fair tax which the Commission proposed last year and which currently is the source of much attention: the Financial Transaction tax.

We all know that Member States and the EU intervened massively to rescue the financial sector.

Meanwhile, this same sector carries a disproportionately lower tax burden than other sectors in our society.

The FTT will redress the balance, and ensure that the financial sector makes a fair contribution to public finances.

In addition to this, it will deliver significant new revenues that could be channelled into growth-promoting measures, for the benefit of all.

Agreement on the FTT has not been possible at 27. However, last year, the Commission received requests from 11 Member States to move ahead with a common FTT, under what we call the enhanced cooperation procedure.

Although Ireland is not one of these 11 Member States signed up to move ahead with the FTT, I am confident that it will facilitate progress during its Presidency. The European Council and our citizens have high expectations for quick results.

Conclusion

Ladies and Gentlemen,

Taxation has a major role to play in ensuring smart consolidation and sustainable growth in the EU.

Our goal must be to make the Single Market the best place in the world to do business; to become a benchmark for competitive and efficient tax systems.

The European Union is currently designing the deepening of the Euro and the forging a genuine Economic and Monetary Union.

Taxation cannot be avoided in this debate. The day of isolated tax policy is over.

Coming closer together as a Union on tax matters reinforces every Member States’ capacity to offer a sound and competitive business environment.

It helps our businesses, and attracts investment. And it strengthens our common position when addressing international challenges and spreading the principle of fair taxation abroad.

I therefore strongly believe that for taxation, as for other policy areas, the answer to our current challenges lies in more Europe, not less. And I am confident that the Irish presidency will push this agenda forward.

European Commission, Brussels December 18, 2012

Grounds for and objectives of the proposal

Article 397 of Council Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’) provides that ‘the Council, acting unanimously on a proposal from the Commission, shall adopt the measures necessary to implement this Directive’.

On that basis, the Council adopted Council Implementing Regulation (EU) No 282/2011 (‘the VAT Implementing Regulation’), setting out rules on how to apply certain provisions of the VAT Directive and also enshrining in law a number of guidelines agreed by the VAT Committee since 1977.

Large parts of the VAT Implementing Regulation relate to changes to the rules on the place of supply of services introduced in 2008 (by the ‘VAT Package’).

Some of those changes need further clarification, in particular those concerning telecommunications, broadcasting or electronic services supplied to non-taxable persons, which from 2015 become taxable in the Member State in which the customer is established, has his permanent address or usually resides.

Suppliers of such services will need to identify and account for VAT in that Member State.

Measures have already been taken to implement the special schemes for those suppliers who are not established in the Member State of taxation.

Further measures are needed to ensure that the rules governing the place of supply of these services are applied uniformly.

It is essential to amend the VAT Implementing Regulation to lay down rules on how to apply the relevant provisions of the VAT Directive.

These measures should be adopted by the Council as soon as possible and certainly by the end of 2013, in order to give businesses and the Member States sufficient time to prepare for the changes.

This proposal and the definitions it contains do not preclude the outcome of ongoing discussions on applying reduced VAT rates to online products and services.

General context

Telecommunications, broadcasting and electronic services are, in general, taxed at the place where the customer is established or resides.

Where the supplier is established within the EU and the customer is a non-taxable person, the supply is, however, currently taxed at the place where the supplier is established.

From 1 January 2015, all telecommunications, broadcasting and electronic services will be taxable at the place where the customer belongs (unless the rule on effective use and enjoyment applies), even if the customer is a non-taxable person.

For non-taxable persons, EU and non-EU suppliers will need to identify where the customer is established, has his permanent address or usually resides. Without a VAT identification number (which is usually reserved for taxable persons) for guidance, the supplier will have to rely to some extent on information from the customer.

To ensure legal certainty, and avoid double taxation or non-taxation, suppliers need clear and binding rules on how to do this.

Detailed explanation of the proposal

The proposed implementing measures relate to the following types of services:

Telecommunications, broadcasting and electronic services

From 1 January 2015, EU (and non-EU) businesses will need to determine where their customer (non-taxable person) belongs in order to ensure correct taxation of these services.

In order to ensure that the transition is smooth and coordinated at EU level, the Commission is proposing measures for the implementation of the new rules.

This follows in-depth and close consultations with businesses and Member States.

These measures will not change the rules for telecommunications, broadcasting and electronic services laid down by the VAT Directive but will clarify how those rules should be applied in practice.

Articles 6a and 6b, together with the changes proposed to Article 7 and Annex II, seek to clarify the nature of telecommunications, broadcasting and electronic services.

Each of these services should be defined so as to set the boundaries of the new rules.

A definition of broadcasting services is therefore included together with examples to illustrate which services are covered and which are not.

To provide legal certainty, preference is given to qualifying the services in positive terms.

The existing list of examples of electronic services has been adapted and similar lists drawn up for telecommunications and broadcasting services. The lists are neither definitive nor exhaustive.

Article 9a clarifies the treatment of broadcasting and electronic services when supplied through the telecommunications network or via an interface or a portal such as a marketplace for applications belonging to an intermediary interface or a portal (or a third party intervening in the supply).

The presumption is that in supplying those services the intermediary acts on behalf of the supplier but in its own name.

Unless stated otherwise, the intermediary will be deemed to have received and supplied those services.

Where supply is made to a non-taxable person, the intermediary then has to account for VAT in the Member State of its customer.

Article 13a specifies that, similar to a taxable person, a non-taxable legal person is established at the place where his business is established or where he has a fixed establishment.

Article 18 deals with the status of the customer.

It allows a supplier to treat a customer who does not communicate his VAT identification number as a non-taxable person but only if the supplier does not have information to suggest otherwise.

Where the place of taxation depends on whether the customer is a taxable or a non-taxable person, the risk of relying solely on the VAT identification number is that the supply could be displaced if a taxable customer chooses not to communicate the number.

No such risk exists with telecommunications, broadcasting and electronic services, which in any circumstance will be taxable at the place of the customer.

The new paragraph 2 clarifies that for such services, the supplier can regard any customer who does not provide a VAT identification number as a non-taxable person.

This will allow the supplier to determine immediately and with certainty whether payment of VAT falls to the supplier (as it does for supply to a non-taxable person, or to a taxable person in the same Member State) or whether the customer needs to account for the tax (because the supply is to a taxable person in another Member State).

However, this initial assessment will have to be reviewed and corrected should the customer subsequently communicate his VAT identification number.

Article 24 deals with situations where the customer is established or resides in more than one country.

The aim is to avoid conflicts concerning jurisdiction between Member States.

The new paragraph 3 clarifies what should be taken into account in order to determine the place that best ensures taxation at the place of actual consumption.

Subsection 3a provides for non-rebuttable presumptions where it is impossible or almost impossible for the supplier to establish the capacity of a customer or to know where the customer is actually established, has his permanent address or usually resides.

Article 24a deals with cases where a supplier of telecommunications, broadcasting or electronic services provides those services to a customer at certain locations.

In cases such as a telephone booth or a visit to an internet cafe, the supplier will not know who the customer is or may find it virtually impossible to check where that customer actually belongs.

As the physical presence of the person receiving the service is needed for the service to be rendered to him, the presumption is that the customer belongs in that country.

Article 24b deals with cases where use is made of pre-paid credits stored on a SIM card to receive the services.

As, in general, there is no collection of personal details upon the sale of such cards, the supplier who is not necessarily supplying the customer with the card, will not know who that customer is.

The country of issue of the SIM card is key to establish where the customer is.

As use will often be in that country, the presumption is that the customer also belongs there for this purpose.

Subsection 3b provides for rebuttable presumptions where it is difficult, but not impossible, for the supplier to know where the customer is actually established, has his permanent address or usually resides.

Where the supplier has information to indicate that the customer belongs elsewhere, the presumptions shall not apply.

Article 24c deals with cases where services are supplied to the customer via a fixed land line connected with a residential building. As that is also where the service will be used, the presumption is that the customer belongs there.

Article 24d covers cases where the customer makes use of a post-paid SIM card to receive the services.

As with pre-paid credits, the presumption is that the customer belongs in the country of issue of the SIM card. Given that with services received through the use of a post-paid SIM card, the supplier will know the customer, there needs to be scope for this presumption to be rebutted.

Article 24e suggests that a customer who needs a device or a viewing card in order to receive the services can be presumed to belong where the device is installed or where the viewing card is sent for use.

The presumption does not apply in cases where the device is sold without installation or where the viewing card is sold but not sent to the customer.

Article 24f covers all other cases where the presumption is that the customer belongs at the place as established by the supplier through sufficient evidence.

This presumption applies to the extent that the supplier does not have contradictory evidence. Subsection 3c focuses on evidence for use in identifying customer location.

Article 24g sets out a list of items of information which can be used as evidence by the supplier in identifying where a non-taxable customer belongs.

As there is no VAT number for guidance, the supplier needs to know what other information can be relied on. The list, whilst not exhaustive, suggests which are the most relevant items of information for use as evidence.

To be proportionate, the evidence used must be sufficient to determine with relative certainty where the customer belongs but the burden of proof must not be excessive.

That is best achieved by setting a common level of evidence.

Relying on a single piece of evidence is not appropriate as that leaves too much scope for differences in application.

Two convergent separate pieces of evidence are therefore required.

Services connected with immovable property

Article 47 of the VAT Directive provides for the place of supply of services connected with immovable property to be the place where the property is located. Measures are included to clarify the scope of that provision based on guidelines agreed by the VAT Committee.

Article 13b provides a definition of what constitutes immovable property. The concept of immovable property is a common notion independent of national law. A definition of this concept is needed to facilitate the correct application of the place-of-supply rules. The definition is largely based on the case law of the Court of Justice of the European Union.

Article 31a specifies that for services to be connected with immovable property, the connection needs to be sufficiently direct (paragraph 1). That covers services derived from an immovable property if the property makes up a constituent element of the service and is central and essential for the services supplied such as the granting of fishing permits; or provided to, or directed towards, an immovable property having as their object the legal or physical alteration of that property such as the services of architects or estate agents.

Examples are included to illustrate which services are connected with immovable property (paragraph 2), and which are not (paragraph 3).

Article 31b provides that the hiring of equipment to a customer, with or without accompanying staff, with a view to carrying out work on an immovable property shall only be regarded as a service connected with immovable property if the supplier assumes responsibility for the execution of the work.

Where the equipment is put at the disposal of the customer together with sufficient staff for its operation, the presumption is that the supplier has assumed such responsibility.

In this case, the service must be taxed in the country where that immovable property is located.

Article 31c clarifies that telecommunications, broadcasting or electronic services provided by hotels or the like to their customers in connection with accommodation will be treated for VAT purposes in the same way as the supply of the accommodation itself.

Depending on the way those services are charged, they either form part of a single supply of accommodation (in the case of ‘all inclusive’ prices) or are regarded as being ancillary to the supply of accommodation.

Entry to cultural, artistic, sporting, scientific, educational, entertainment or similar events continues to be taxable at the place where the event actually takes place.

Where entry to such events is granted to a taxable person, the supply is covered by Article 53 of the VAT Directive. Article 54 of the VAT Directive comprises the supply of entry to such events to a non-taxable person.Article 33a confirms that tax treatment is not influenced by the way in which the distribution of tickets for such events is organised. In all circumstances, the supply of tickets must be taxed at the place where the event takes place.

Transitional measures

Under Article 63 of the VAT Directive, the chargeable event occurs and the VAT becomes chargeable when goods or services are supplied. If payment is made on account under Article 65 of the VAT Directive or if Member States have availed themselves of the option in Article 66 of the VAT Directive, VAT can, however, become chargeable prior to or soon after supply.

For telecommunications, broadcasting or electronic services supplied around 1 January 2015, i.e. the time when the new rules on the place of supply become applicable, conditions linked to the supply or differences in application between Member States could result in double taxation or non-taxation.

To prevent this from happening, Article 2 of the proposal makes it clear that, no matter when the VAT becomes chargeable, the decisive moment for determining the place of supply is when the services are supplied or, for ongoing supplies giving rise to successive statements of account or successive payments, when each supply is completed.

That is when the chargeable event occurs in any of the Member States.

Those measures are necessary to ensure a smooth transition to the rules put in place as of 1 January 2015.

The EU customs union must not become a “two-speed” one, in which some member states enable businesses to complete customs formalities electronically, but others require them to do so on paper, said the Internal Market Committee on Tuesday. The committee also amended a proposed customs “action plan” to help member states to acquire high-tech equipment such as scanners.

The modernised EU Customs Code, theoretically took effect in 2008, but is not yet fully applicable, because not all its implementing arrangements are in place. The information technology used by customs administrations that can afford it has meanwhile continued to develop, so that the Customs Code itself now needs to be updated.

“With this vote we wanted to modernize and expand the EU Customs Union. It plays a fundamental role in the functioning of the single market which needs clearer and more modern common customs rules, at the same time also adapted to the needs of European businesses and to the challenges our customs administrations face” said Constance le Grip (EPP, FR), who is steering the resolution through Parliament. The text was approved in committee with 31 votes in favour, 1 against and 2 abstentions.

Electronic data interchange or two-speed union

MEPs approved proposed paper-free customs procedures and sought to prevent the “two-speed” customs union they fear could emerge if member states fail to introduce an electronic data interchange system between customs administrations and economic operators. Only in exceptional cases and for limited periods should this information be exchanged on paper, they said.

Simpler procedures

The resolution calls for more preferential treatment for “authorised economic operators” (AEOs), such as fewer checks at the point of import or export, automatic access to some simplified customs procedures or having their customs applications processed first.

If any member state tests ways to simplify its application of EU customs legislation, then their findings should be made available to all member states, say MEPs.

IT-focused budget

Given that the modernised customs system cannot work as it should without an adequate budget, the committee also examined a Commission proposal for an EU customs action programme including a support budget of €548 million. However, Parliament will not back this figure until it sees the final results of negotiations on the EU’s next 7-year overall budget.

“The Customs 2020 programme will deliver considerable benefits to EU citizens and business by helping to enable member states to block unsafe or illegal imports and to facilitate trade. This programme should cover technical capacity building and ensure a minimum amount for developing and maintaining IT systems. Both are vitally important to ensure effective protection of the EU’s external borders”, said the rapporteur Raffaele Baldassarre (EPP, IT).

MEPs proposed that at least 75% of Customs 2020 funds be earmarked for customs IT capacity building. The programme should also provided funding to help member states to buy and maintain high-tech gear such as scanners and laboratory equipment, they add.

Next steps

Although the committee voted some amendments to theCustoms 2020 programme, it postponed its the final vote, on the programme as a whole, to its next meeting.

The committee will also decide in January 2013 whether to open informal negotiations with the Council with a view to reaching first-reading agreements on these two regulations.

The AEO Guidelines

The AEO Guidelines, recently updated to keep in consideration the experience so far gained, ensure harmonised implementation of the AEO rules throughout the EU, guaranteeing the equal treatment of economic operators and transparency of the rules.

The AEO guidelines are composed by a set containing the guidelines itself and three annexes: the Self-Assessment Questionnaire (SaQ) and its explanatory note, the list of possible risks, threats and solutions and a template of Security declaration.

The AEO guidelines explain the AEO concept based on the adopted legislation, including:

Explanations about what an AEO is and on the different categories of AEO;

A description of the AEO benefits, including a specific section on mutual recognition;

A detailed description of the AEO criteria;

A detailed explanation of the application and authorisation process including guidance on which is the competent Member State where the AEO application has to be submitted, on the acceptance of the application, and on how to conduct effective and efficient risk analysis and audits;

A specific section dedicated to Small and Medium sized Enterprises (SME) with guidance on how to examine the AEO requirements if the applicant is an SME.

A section giving information on the factors that help customs authorities to speed up the authorisation process;

Guidance for both customs authorities and economic operators on how to facilitate the procedure for parent/subsidiary companies;

A specific section on how Member States cooperate in exchanging information;

Guidance on how to perform monitoring after an AEO certificate has been issued;

A complete explanation on the concept of “business partners’ security”, including their identification and possible measures for securing.

It is a lively document aimed at helping both economic operators and customs authorities throughout the AEO procedure, providing them a list of the most significant risks related to the AEO authorisation and monitoring process, and possible solutions on how to keep these risks under control.

“These new VAT rules reflect what businesses in Europe need today: simpler procedures, reduced costs and support in applying solutions that best meet their needs.”

Background

The second Directive on VAT invoicing was adopted in July 2010, and must be applied in all Member States from 1st January 2013.

It aims to simplify rules on VAT invoicing to reduce burdens and barriers for businesses.

Electronic and paper invoices are placed on an equal footing, with common rules, under the Directive, in order to promote the uptake of e-invoicing. Member States will no longer be allowed to set pre-conditions for the use of electronic invoices, such as e-signatures, and invoices will be allowed to be electronically stored.

In addition, the new rules give, Member States the option of allowing small businesses with a turnover under €2 million to declare and pay their VAT when they receive or make payments , rather than at the time of the invoices.

In view of the long delay that can occur between invoicing the customer and receiving payment, in particular for small businesses, this will provide them with relief in terms of cash flow.

The transposition of VAT invoicing rules in the EU 27 Member States is also a key action under the Digital Agenda for Europe.

For a full explanation of the main VAT invoicing rule changes as from 1st January 2013, see:

The EU’s Council of Economic and Finance Ministers will start on Tuesday, 4 December at 11.00.

The European Commission will be represented by Olli Rehn, Vice President and Commissioner for Economic and Monetary Affairs and the Euro, Michel Barnier, Commissioner for Internal Market and Services and Algirdas Šemeta, Commissioner for Taxation and Customs Union, Audit and Anti-Fraud.

A press conference is expected to take place after the meeting.

Financial Transaction Tax

The Council is expected to hold a debate on the Commission’s proposal to authorise going forward with a common Financial Transaction Tax system in 11 Member States.

On 23 October, the Commission tabled a proposal for a Council Decision to authorise setting up a common system of financial transaction tax under the procedure of enhanced cooperation, which can be used in case no unanimity is achievable and at least 9 Member States want to go ahead in an area that is not yet covered by EU legislation (see IP/12/1138).

It will be based on the scope and objectives of the Commission proposal of 2011 (see IP/11/1085).

The objectives of the September 2011 proposal were essentially three-fold. First, an FTT would strengthen the EU Single Market and avoid distortions of competition by setting up a harmonised framework for an FTT.

Second, it would ensure that the financial sector makes a fair and substantial contribution to covering the cost of the financial crisis.

And finally, it would create appropriate disincentives for transactions that do not enhance the efficiency or stability of financial markets thereby complementing regulatory measures to avoid future crises.

Press Release

The Council discussed latest developments concerning the introduction of a financial transaction tax (FTT) in a number of member states through the “enhanced cooperation” procedure.

On 30 November, the Permanent Representatives Committee decided to send a letter to the European Parliament requesting its consent on a draft decision that would authorise enhanced cooperation.

The Council will continue work on the text once the Parliament has given its consent, and in the light of comments made by delegations.

The Commission in October presented a proposal for a Council decision that would authorise Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia to introduce an FTT via enhanced cooperation (15390/12).

Progress on this dossier is reflected in a report on tax issues to be submitted to the European Council (16327/12). Based on article 329(1) of the Treaty on the Functioning of the European Union, the decision requires a qualified majority for adoption by the Council, with the consent of the European Parliament.

A legislative act defining the substance of the enhanced cooperation would be adopted subsequently, requiring unanimous agreement by the participating member states.

In 2011, the Commission proposed a directive aimed at introducing an FTT throughout the EU2, but Council discussions in June and July this year revealed support for the proposal to be insufficient.

In September and October, the (abovementioned) 11 member states wrote to the Commission requesting a proposal for enhanced cooperation, specifying that the scope and objective of the FTT be based on that of the Commission’s original proposal.

The aim was for the financial industry, which many consider as under-taxed, to make a fair contribution to tax revenues, whilst also creating a disincentive for transactions that do not enhance the efficiency of financial markets.

VAT Quick Reaction Mechanism

The Council will hold an orientation debate on the Commission’s proposal for a Quick Reaction Mechanism (QRM) that would enable Member States to respond more swiftly and efficiently to VAT fraud (see IP/12/868).

VAT fraud costs the EU and national budgets several billion euro every year. In some serious cases, vast sums are lost within a very short timeframe.

Under the QRM, a Member State faced with a serious case of sudden and massive VAT fraud would be able to implement certain emergency measures, in a way which they are currently not allowed to under VAT legislation.

In this context, the proposal provides that the Commission would be able to take within a month a decision authorising a Member State to apply a “reverse charge mechanism” which makes the recipient rather than the supplier of the goods or services liable for VAT.

Under the current derogation system, only the Council can do so upon a proposal from the Commission, according to a procedure which may take up to a year.

The proposed QRM would significantly improve the chances of Member States to effectively tackling complex fraud schemes, such as carrousel fraud, and to reducing otherwise irreparable financial losses.

Press Release

The Council held a policy debate on a proposal for a directive aimed at enabling immediate measures to be taken in cases of sudden and massive VAT fraud (“quick reaction mechanism”).

The debate focused on whether implementing powers under the directive should be conferred on the Commission or on the Council. The Council asked the Permanent Representatives Committee to oversee further work on the proposal, exploring both alternatives, with a view to enabling it to reach an agreement as soon as possible.

Fraud schemes are evolving rapidly and situations arise that require a rapid response, for instance in cases of “carousel” fraud.

Until now, such situations have been tackled either by amendments to the VAT directive (2006/112/EC) or through individual derogations granted to member states under that directive, requiring a proposal from the Commission and a unanimous decision by the Council, a process that can take several months.

The Commission’s proposal is aimed at speeding up the procedure for authorizing member states to derogate from the provisions of the VAT directive, by providing for implementing powers to be conferred on the Commission under a “quick reaction mechanism”.

Based on article 113 of the Treaty on the Functioning of the European Union, the directive requires unanimity for adoption by the Council, after consulting the European Parliament.

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Tax Management Consultancy is designed to keep readers abreast of current developments, but it is a general guide only and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains, or for any errors or omissions

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